Exhibit 99.4
Mayville Metal Products Division
of Connell Limited Partnership
Financial Statements
For the Years Ended December 31, 2000 and 1999
Report of Independent Accountants
To the Partners of Connell Limited Partnership:
In our opinion, the accompanying balance sheets and the related statements of
income and parent investment and cash flows present fairly, in all material
respects, the financial position of the Mayville Metal Products Division
("Mayville") of Connell Limited Partnership at December 31, 2000 and 1999, and
the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of Mayville's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
February 28, 2001
Mayville Metal Products Division of Connell Limited Partnership
Balance Sheets
December 31, 2000 and 1999 (In Thousands)
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2000 1999
Assets
Current assets:
Cash and cash equivalents $ 9 $ 7
Accounts receivable, net 18,041 12,350
Inventories (Note 3) 14,358 8,360
Prepaid insurance 120 121
Other current assets 98 73
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Total current assets 32,626 20,911
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Property, plant and equipment, net (Note 4) 23,102 22,156
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Total assets $ 55,728 $ 43,067
========= =========
Liabilities and Parent Investment
Current liabilities:
Cash overdraft (Note 5) $ 2,831 $ 1,003
Accounts payable 7,850 5,401
Accrued pension, health and workers' compensation 1,959 2,052
Accrued management fees, interest and taxes 3,173 1,719
Accrued expenses 5,242 4,710
Alliant Savings Contract - current (Note 6) 251 -
Amounts due Parent (Note 2) 617 476
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Total current liabilities 21,923 15,361
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Long-term debt (Note 5) 24,794 27,711
Alliant Savings Contract - long-term (Note 6) 846 -
Commitments and contingencies (Note 10)
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Total liabilities 47,563 43,072
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Parent investment (Note 2) 8,165 (5)
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Total liabilities and parent investment $ 55,728 $ 43,067
========= =========
The accompanying notes are an integral part of these financial statements.
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Mayville Metal Products Division of Connell Limited Partnership
Statements of Income and Parent Investment
For the Years Ended December 31, 2000 and 1999 (In Thousands)
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2000 1999
Net sales $ 170,815 $ 125,947
Cost of sales 139,930 99,779
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Gross profit 30,885 26,168
Selling and marketing expenses 3,713 3,584
General and administrative expenses 10,432 8,032
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Total operating expenses 14,145 11,616
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Operating income 16,740 14,552
Interest expense, parent 1,341 1,434
Other income (15) (107)
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Net income (Note 2) $ 15,414 $ 13,225
========== =========
Parent investment, beginning of year $ (5) $ (7,014)
Net income (Note 2) 15,414 13,225
Distribution for taxes (Note 2) (7,244) (6,216)
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Parent investment, end of year $ 8,165 $ (5)
========== =========
The accompanying notes are an integral part of these financial statements.
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Mayville Metal Products Division of Connell Limited Partnership
Statements of Cash Flows
For the Years Ended December 31, 2000 and 1999 (In Thousands)
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2000 1999
Cash flows from operating activities:
Net income $ 15,414 $ 13,225
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 4,691 4,563
Gain on sale of property, plant and equipment (15) (106)
Changes in operating assets and liabilities:
Accounts receivable (5,691) (2,638)
Inventories (5,998) (2,237)
Prepaid insurance 1 (92)
Other current assets (25) (36)
Accounts payable 2,449 966
Accrued pension, health and workers' compensation (93) 555
Accrued management fees, interest and taxes 1,454 25
Accrued expenses 532 700
Amounts due Parent 141 (180)
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Net cash provided by operating activities 12,860 14,745
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Cash flows from investing activities:
Purchases of property, plant and equipment (5,637) (4,515)
Proceeds from sale of property, plant and equipment 15 446
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Net cash used by investing activities (5,622) (4,069)
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Net cash flows before financing activities 7,238 10,676
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Cash flows from financing activities:
Change in cash overdraft 1,828 (442)
Proceeds from Alliant Savings Contract 1,300 -
Payments on Alliant Savings Contract (203) -
Payments on long-term debt, net (2,917) (4,017)
Distribution for taxes (7,244) (6,216)
--------- ---------
Net cash used by financing activities (7,236) (10,675)
Net increase in cash 2 1
Cash, beginning of year 7 6
--------- ---------
Cash, end of year $ 9 $ 7
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 822 $ 1,021
Cash paid during the year for income taxes $ 5,973 $ 6,269
The accompanying notes are an integral part of these financial statements.
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Mayville Metal Products Division of Connell Limited Partnership
Notes to Financial Statements
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1. Description of Business
Mayville Metal Products Division (the "Division" or "Mayville") is a
division of Connell Limited Partnership ("CLP" or "Parent") and is a
manufacturer, supplier and integrator of frames and enclosures principally
to the telecommunications and semiconductor industries.
2. Summary of Significant Accounting Policies
Basis of Presentation and Relationship with Connell Limited Partnership
The accompanying financial statements present the Division's financial
position and its results of operations as it operated within Connell
Limited Partnership.
Management of external legal counsel activities, if any, and certain legal
agreement reviews, partnership tax preparation, external financial
reporting, policy setting, banking activities, and general management
oversight have historically been performed by CLP on behalf of the
Division. Under the terms of the service arrangement between the Division
and CLP, Mayville is charged a monthly fee of 1.5% of net revenue for these
services. This fee is reviewed and adjusted annually at the end of the year
to approximate the Division's share of actual costs allocated based on CLP
management's estimated time expended with respect to the Division. Mayville
has recorded $2,201,000 and $1,385,000 related to these services for the
years ended December 31, 2000 and 1999, respectively, which is included in
general and administrative expenses in the Statements of Income and Parent
Investment. Management believes these fees are reasonable and approximate
the estimated cost of services incurred for each period presented.
Additional items, such as benefit plans, insurance coverage and other
identifiable costs, are charged to Mayville by CLP based on direct costs
attributable to the Division. Such amounts approximated $4,415,000 and
$3,171,000 for the years ended December 31, 2000 and 1999, respectively,
and are included in the accompanying statements of income and parent
investment.
Cash and short-term investment activities pertaining to the Division are
included in CLP's centralized cash concentration system. Accordingly, the
Division's principal operating cash receipts and disbursements are
transacted through CLP's consolidated debt facility. Net receipts and
disbursements are reported as a financing activity in the accompanying
statements of cash flows.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Concentrations of Credit Risk
The financial instruments that potentially subject Mayville to credit risk
consist primarily of accounts receivable. At December 31, 2000 and 1999,
the Division maintained an allowance for doubtful accounts of $161,000 and
$163,000, respectively.
During 2000, sales to four customers accounted for 90% of sales. At
December 31, 2000, accounts receivable from two customers account for 57%
of the accounts receivable balance.
During 1999, sales to three customers accounted for 77% of sales. At
December 31, 1999, accounts receivable from four customers account for 80%
of the accounts receivable balance.
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Mayville Metal Products Division of Connell Limited Partnership
Notes to Financial Statements
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Revenue Recognition
Revenue from product sales is recognized upon shipment to the customer,
provided that the price is fixed and determinable, collection is probable
and there are no material known uncertainties with respect to customer
acceptance.
Inventories
Inventories are recorded at the lower of cost or market. The first in,
first-out (FIFO) method is used to determine the cost of all inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is computed using the straight-line method
based on estimates of useful lives. The estimated useful lives are
principally 10 to 25 years for buildings and improvements and 3 to 15 years
for machinery and equipment. Leasehold improvements are amortized over the
lesser of the lease term or their estimated useful lives using the
straight-line method. Maintenance and repairs are charged to expense as
incurred. Additions, improvements and major rebuilds are capitalized.
Upon sale or retirement, the cost and related accumulated depreciation are
eliminated from the respective accounts and the resulting gain or loss is
included in operations.
Long-Lived Assets
The Division periodically evaluates the net realizable value of long-lived
assets including property, plant and equipment, relying on a number of
factors including operating results, business plans, economic projections
and anticipated future cash flows. An impairment in the carrying value of
an asset is assessed when the undiscounted, expected future operating cash
flows derived from the asset are less than its carrying value. If an asset
is determined to be impaired, it would be reported at fair value. Fair
values are based on assumptions concerning the amount and timing of
estimated future cash flows and assumed discount rates, reflecting varying
degrees of perceived risk.
Parent Investment
Parent investment includes CLP's investment in Mayville, which is comprised
of the Division's accumulated results reduced by annual distributions to
CLP.
Pension and Other Postretirement Benefit Plans
The Division participates in defined benefit plans of CLP covering
substantially all employees and a multiemployer plan. CLP's funding policy
is to contribute, at a minimum, the statutory required amounts. Also on
behalf of the Division, CLP provides postretirement healthcare and life
insurance benefits for certain employees and retirees.
Income Taxes
Income taxes attributable to the Division are paid directly by CLP's
partners. Pursuant to the terms of CLP's partnership agreement, the
Division is assessed a 47% charge based on book income.
Research and Development
Research and development expenditures are expensed when incurred.
Advertising
Advertising costs are expensed when incurred.
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Mayville Metal Products Division of Connell Limited Partnership
Notes to Financial Statements
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3. Inventories
Inventories consist of the following (in thousands):
December 31,
2000 1999
Finished goods $ 4,466 $ 3,504
Work in progress 723 687
Raw materials 9,169 4,169
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Total $ 14,358 $ 8,360
======== ========
4. Property, Plant and Equipment
Property, plant and equipment consists of the following (in
thousands):
December 31,
2000 1999
Land $ 1,177 $ 1,177
Building and improvements 11,516 10,611
Machinery and equipment 41,287 36,821
Construction in progress 1,493 1,277
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55,473 49,886
Less: accumulated depreciation (32,371) (27,730)
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Property, plant and equipment, net $ 23,102 $ 22,156
======== ========
Depreciation expense for the years ended December 31, 2000 and 1999
approximated $ 4,691,000 and $4,563,000, respectively.
5. Long-Term Debt
Long-term debt consists of the following (in thousands):
December 31,
2000 1999
Acquisition debt $ 10,694 $ 13,611
Industrial Revenue Bonds ("IRB") 14,100 14,100
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$ 24,794 $ 27,711
======== ========
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Mayville Metal Products Division of Connell Limited Partnership
Notes to Financial Statements
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The acquisition debt amount reflects an allocation of CLP's general debt
used in the acquisition of CLP's various businesses. This amount is
subsequently adjusted for distributions to CLP and cash generated or used
since acquisition. The bank note agreement that the acquisition debt
relates to provides CLP with the option to borrow at the bank's base
lending rate, London Interbank Offered Rate (LIBOR), Bankers' Acceptances
(BA's) or via competitive bid loans. The agreement allows for a spread to
be added to the reference index based on certain performance benchmarks
related to interest coverage. During the years ended December 31, 2000 and
1999, the spreads ranged from 0% to 2% and 0% to 5/8%, respectively,
depending upon the rate option utilized.
The weighted average interest rate was 8.36% and 6.21% during 2000 and
1999, respectively, and 8.7% and 7.1% at December 31, 2000 and 1999,
respectively.
CLP has agreed to pay a facility fee on the commitment, less outstanding
base rate borrowings. The fee ranges from 1/4% to 3/8% per annum in
accordance with certain benchmarks related to interest coverage.
The credit agreement requires the maintenance of certain defined financial
ratios related to CLP's consolidated minimum capitalization, debt-to-
capitalization and interest coverage. In addition, there are certain
restrictive covenants, primarily limitations on partners' distributions and
the pledging of assets. CLP was in compliance with all covenants of the
credit agreements as amended on December 28, 2000.
The Industrial Revenue Bonds ("IRB") were issued in conjunction with the
Division's Arizona and North Carolina manufacturing facilities. The
Arizona facility IRB amounts to $5,100,000 and matures on July 1, 2015.
The North Carolina IRB amounts to $9,000,000 and matures on May 23, 2020.
The IRBs bear interest at market rates adjusted weekly in accordance with
the indentures. The weighted average interest rate was approximately 4.24%
and 3.41% during 2000 and 1999, respectively and was 5.03% and 5.16% at
December 31, 2000 and 1999, respectively.
The IRBs are supported by bank letters of credit. In addition, the debt
holders of the IRBs have a priority lien on certain property, plant and
equipment of the Division's North Carolina and Arizona manufacturing
facilities. The net book value of the collateral is approximately
$8,600,000. In connection with the sale of the Division, the IRBs will be
fully paid (Note 11).
Checks issued by Mayville but not presented for payment against CLP's
revolving credit facility approximated $2,831,000 and $1,003,000 at
December 31, 2000 and 1999, respectively, and are included in cash
overdraft in the accompanying balance sheets.
6. Alliant Savings Contract
In February 2000, Mayville entered into a shared savings arrangement with a
utility company to acquire energy efficient machinery and equipment.
Principal of $1,300,000 and interest, at 3%, are payable in 60 equal
monthly installments beginning on March 1, 2000. The contract is
collateralized by the equipment purchased. Interest expense recognized
during the year ended December 31, 2000 was approximately $30,000.
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Mayville Metal Products Division of Connell Limited Partnership
Notes to Financial Statements
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7. Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for accounts
receivable, accounts payable and certain other current liabilities
approximate fair value because of the immediate or short-term nature of
these financial instruments.
8. Employee Benefit Plans
Pension Plans
The Division participates in CLP's defined benefit cash balance pension
plan covering substantially all salaried, non-union employees. CLP's
funding policy is to contribute, at a minimum, the statutory required
amounts. The Division's pension cost with respect to this plan was
$202,000 and $171,000 for the years ended December 31, 2000 and 1999,
respectively. The Division also makes contributions to certain
multiemployer plans. The expense under these plans approximated $587,000
and $458,000 for the years ended December 31, 2000 and 1999, respectively.
Profit-Sharing and Savings Plan
The Division also participates in CLP's defined contribution profit-sharing
and savings plan for all nonunion hourly and salaried employees, a savings
plan for certain hourly union employees in accordance with a collective
bargaining agreement, and incentive compensation plans for certain
management personnel. Mayville's expense under these plans for the years
ended December 31, 2000 and 1999 was approximately $1,380,000 and $940,000,
respectively.
Postretirement Health Care and Life Insurance Benefits
The Division participates in CLP's postretirement health care and life
insurance benefits plan covering certain eligible employees of certain
divisions. The Division's postretirement benefit cost with respect to this
plan approximated $15,000 and $19,000 for the years ended December 31, 2000
and 1999, respectively.
9. Leases
The Division leases certain real estate, machinery, equipment and vehicles
in the normal course of business under various operating leases. Lease
agreements frequently include renewal options and require that Mayville pay
for utilities, taxes, insurance and maintenance expenses. Rental expense
associated with operating leases for the years ended December 31, 2000 and
1999 approximated $832,000 and $452,000, respectively.
Minimum aggregate noncancelable lease commitments as of December 31, 2000
are as follows:
(in thousands)
2001 $ 992,000
2002 610,000
2003 500,000
2004 452,000
2005 161,000
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$2,715,000
==========
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Mayville Metal Products Division of Connell Limited Partnership
Notes to Financial Statements
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10. Commitments and Contingencies
The Division is subject to various liabilities resulting from transactions
arising in the ordinary course of business and is involved in claims and
legal proceedings in which damages and other remedies are sought. There
are also potential claims and liabilities under federal and state laws and
regulations related to environmental matters. The Division makes accruals
for exposures which are probable and estimable.
Mayville is subject to loss contingencies resulting from environmental laws
and regulations, which include obligations to remove or remediate the
effects on the environment of the disposal or release of certain wastes and
substances at the Mayville manufacturing facility in Mayville, Wisconsin.
The Division has established an accrual for environmental remediation costs
where it is probable that a loss has been incurred and the amount of the
loss can reasonably be estimated. The reliability and precision of the
loss estimates are affected by numerous factors and remedial actions.
Actual costs to be incurred for environmental cleanup may vary from
previous estimates and the assertion of additional claims. The Division
adjusts its accruals as new remediation requirements are defined, as
information becomes available permitting reasonable estimates to be made
and to reflect new and changing facts. The December 31, 2000 and 1999
balance sheets of the Division include an environmental remediation accrual
(undiscounted) in the amount of $200,000 and $230,000, respectively.
11. Sale of Division
On January 23, 2001, CLP entered into an agreement to sell the Division.
On February 16, 2001 the sale was completed. No adjustments, which may be
required by this transaction, have been recorded in the accompanying
financial statements.
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